5. The longer a bond's maturity date, the _______ sensitive its value is to fluctuations in interest rates.

A) more

B) less

The principal value of bonds may fluctuate with market conditions. Bonds redeemed prior to maturity may be worth more or less than their original cost. Investments seeking to achieve higher yields also involve a higher degree of risk.

Answers

1. B)Federal funds rate. This is the rate that Federal Reserve banks charge each other for overnight loans within the Federal Reserve system. It typically affects other interest rates, including the prime rate and adjustable mortgage rates, but the Fed does not directly control those rates.

2. A)raises/lowers. Raising rates theoretically slows economic activity, which helps to dampen inflation. Inflation remained slightly below the Fed's 2% target rate through March 2017, so it seems that recent rate hikes are aimed at returning interest rates to a more typical historical range while guarding against future inflation.1 The Fed dropped rates to historic lows in 2008 to stimulate the slow economy.

3. B)False. Higher borrowing costs can reduce corporate profits and reduce the amount of income consumers have available for spending. However, even with higher rates, an improving economy could be good for companies, consumers, and investors in the long term.

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